Revenue accused of scare tactics letter (edited: 11:45)

Small businesses and advisers are concerned about Revenue tactics which involve sending a vague letter suggesting something is wrong with their tax return, but not explaining what it could be.

The Revenue has sent some self-employed people what has been described as an 'enabling letter' relating to tax returns they have submitted. It includes the phrase:

"From a risk review of 2003 returns, we have identified an aspect of the Self Employment pages of your return which may need particular attention. We want to help you get this aspect right first time, which may avoid the need for an enquiry. I am therefore enclosing some ‘Questions and Answers’ which aim to help you with that part of the return."

It goes on to say that if the return is wrong, the Revenue will recover any additional tax, with interest and a penalty where appropriate; and recommends that advice should be sought if you are uncertain about what to declare as income or claim as an expense.

The enclosed Question & Answer paper covers a number of issues including business expenses, use of home office, payment of spouse, personal use of company provisions, use of company car for personal use, etc

However, it is not clear which aspect of the tax return needs particular attention.

As a result, there have been allegations and concerns posted on accountancy websites that this is little more than a 'fishing exercise' designed to worry or intimidate the self-employed into thinking there is something wrong.

Don't feel intimidated

Barry Roback, Joint CEO of the JSA Group, the specialist accountants for contractors advised freelancers not to feel intimidated.

Barry Roback said: "Providing that self-assessment returns are correctly filled in, there is no need to produce further information and a polite letter to the Revenue saying your return, to the best of your knowledge, is accurate and complete, should suffice.

"JSA always tries to ensure that our clients make accurate returns but obviously at the end of the day the responsibility lies with the individual. It certainly would appear that the Revenue is acting particularly tough with the self employed at the moment but it is important that contractors should not be intimidated. They have nothing to fear if they play by the book."

Revenue

UKTECH has spoken to the Revenue about this letter to ask why it doesn't clearly identify which aspect needs particular attention; and if they can respond to comments that this is a 'fishing expedition' which is aimed at scaring small businesses into thinking they have done something wrong, when all might be in order.

(Article edited to include the Revenue's response: June 9, 11:45)

The Inland Revenue responded: "The letter has been sent to customers with a business turnover under £15,000 (three line accounts cases), whose expense deductions are high in relation to turnover. We anticipate that about 100,000 letters will be issued nationally.

"These letters are designed to provide advice to our customers to fill in their returns correctly first time by avoiding possible mistakes made in previous years.

"We know from the results of our Self Assessment enquiries that many people make errors when completing their tax returns, either through lack of care or knowledge and sometimes find that customers claim for expenses to which they are not entitled.

"By offering advice on issues in these letters that our customers are not sure of, we hope to help them to complete future returns accurately, and with confidence."